Skip to comments.A CONSUMPTION TAX A low-rate, broad-based consumption tax would raise the same amount of revenue...
Posted on 09/06/2005 7:21:12 AM PDT by InvisibleChurch
A CONSUMPTION TAX
Daily Policy Digest
Tuesday, September 06, 2005
As the President's Advisory Panel on Federal Tax Reform works on its report (due by the end of September), one of the measures under consideration is switching to a low-rate, broad-based consumption tax.
According to Alan J. Auerbach (University of California, Berkeley), a consumption tax could raise the same amount of revenue as the current tax system:
A shift to a consumption tax could increase Gross Domestic Product (GDP) in the long run by as much as 9 percent. Lower marginal tax rates would increase employment and therefore expand production somewhat in the short run. Over a longer period of time, production would increase even more as the result of stronger capital accumulation induced by the more favorable tax treatment of savings. Critics argue that adopting a consumption tax would raise asset values, but Auerbach says a consumption tax would actually reduce asset values somewhat in the short run:
A consumption tax eliminates the burden on saving and investment, a key reason why capital accumulation would rise; however, a consumption tax would actually increase the tax burden on existing assets because those who have accumulated assets in the past would face consumption taxes when selling their assets in order to consume goods and services. The purchasing power of accumulated assets would suffer, meaning the real (price-level adjusted) values would be lower than before; this feature of the consumption tax is sometimes referred to as a levy on old capital. Auerbach says not all consumption taxes are equal. Significant gains are possible even if the tax system retains its current degree of progressivity, though not if the tax reform also fully shields existing assets.
Source: Alan J. Auerbach, A Consumption Tax, Wall Street Journal, August 25, 2005.
For text (subscription required):
For more on National Sales Tax:
The poor and minorities should be able to easily start and maintain their own businesses. Which is something a consumption tax would allow.
So, let's get rid of that racist income tax! :)
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John Linder in the House(HR25) & Saxby Chambliss Senate(S25) offer a comprehensive bill to kill all income and SS/Medicare payroll taxes outright and replace them with with a national retail sales tax administered by the states.
A bill to promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national retail sales tax to be administered primarily by the States.
Refer for additional information:
Click here to see one of its articles on the national sales tax.
IT IS NOT CONSERVATIVE.
Would that include FICA? I doubt it...
Of course, Bush was aiming to completely change our SS system; that would have made the inclusion of SS unnecessary. However, it doesn't look like he's going to succeed, so we have to consider SS. Quite possibly, this projected consumption tax (which I am in favor of, btw) doesn't take that into account, because it seems awfully low to me. I've heard around 19%, including SS.
I like the idea of EVERYONE paying taxes,since we have to pay them at all, but I don't see this ever flying, as then those currently not paying any taxes will have to start paying and they'll pitch a hissy.
Would this tax be on everything or would food be excluded?
If it would support the same amount of spending, what would the point be?
A Constipation tax hardly seems fair.
I suppose to level the playing field, so to speak, making the tax system the same for everyone. I don't see it happening, but it's sound good in theory.
The NCPA is a good conservative group when it comes to tax policy.
Click here to see their support of VATs with income taxes instead of retail sales taxes with income taxes repealed.
Is the proposed consumption tax rate 14.91%?
Replacing income taxes only and not SS/Medicare taxes that would be approximately the rate, revenue neutral with 1996-97 tax law.
Replacing both income and payroll taxes the proposed rate for the FairTax legislation is 23%.
This would replace the now income tax, correct, or would this be in addition to?
F R E E D O M ! ! !
Probably just SUVs and air.
"Screw this - it will never stop. A quarter percent here, an eighth there. A special sur-tax on certain products. We will never see the end.
IT IS NOT CONSERVATIVE."
I agree 100%.
The problem with the idea of Fair Tax or Consumption Tax or National Sales tax is that it ignores a basic fact. The States and the even some Counties and Cities want a share of the workers tax dollars.
A 24% National Sales tax will be supplimented by 6-12% State Sales Tax depending on the state, Counties and large Cities will tack on a 1-8% additional rate depending on area.
The states themselves are just as bad at sucking the workers tits as the federal government. I will bet anyone that you would have a true fight to get them to give up their Property Tax's
I noticed the supporters say that its up to the people to vote those electors out of office if the rates rise in any way. But sadley the elections of the past prove that the public has no intrest in doing those things today or in the future. The disaster in the South in the wake of Katrina proves to me that there are too many people in this country who believes that the Federal Government is their step father and mother. The demands for fedeal assistance and blaiming the government for not helping enough proves that to me.
Do I have the answer.. No.. but I believe that the state and federal governments need to start thinking of reducing their programs because they have grown to the point to where we can not longer substain the bill for them.
I've heard around 19%, including SS
Incorporating the Bush tax cuts and making them permanent would bring the rate down to between 19-20%. The 2003 calculation come in at 19.3%
See Table two: national FairTax rate calculation: 2003
I'm all for a consumption tax but only after the IRS and ALL federal income taxes are eliminated. I don't want the clowns in DC adding a consumption tax and then saying "oops...we forgot to repeal the federal income tax."
Is the proposed consumption tax rate 14.91%?Don't be fooled. The proposed tax rate in sales tax terms is 30%, not 23%.
This would replace the now income tax, correct, or would this be in addition to?
It replaces all federal income, payroll(e.g. SS/Medicare taxes) and gift/estate taxes.
The current tax laws are repealed and a national retail sales tax substituted in their place.
You can find the actual legislation as it has been introduced on the Thomas website:
Fair Tax Act of 2005 (Introduced in House)
TITLE I--REPEAL OF THE INCOME TAX, PAYROLL TAXES, AND ESTATE AND GIFT TAXES
TITLE II--SALES TAX ENACTED
TITLE III--OTHER MATTERS
You need to acquaint yourself with this a little more. Those people you describe will be more influenced by the check they get every month than the tax they are paying.
Even if it were 50% it would be better than this Communist abortion we presently have.
The proposed tax rate in sales tax terms is 30%, not 23%.
Actually, a bill enacted to meet the Bush's criteria for a revenue neutral plan, such as one providing the same revenues as the current tax system with Bush adminstration tax cuts in place, the rate would be 19.3% tax inclusive as income taxes are calculated, or 23.8% in sales tax terms.
|Table two: national FairTax rate calculation: 2003
You don't seem to know enough about the NRST to be against it. Your complaint is with politicians, not the NRST. Aren't you paying those local and state taxes now? How does that affect your thought about the national tax system? Those state and local taxes are going to be there no matter what. Why not improve the big bite from the fed?
I am sure retirees will love this feature of losing purchasing power. It is unusal for a sales taxer even acknowledges a negative. This is not suitable for fair tax propaganda.
The sales tax rates can go up without a vote. There are automatic tax rate adjustments in the fair tax bill for social security and medicare. Taxes can go up every 6 months because of government statistics.
Don't get me wrong, I am not wild about the situation either.
This proposal certainly sounds good, which by itself is suspicious.
That might be because it was not politicians who authored the legislation.
refer: FairTax History
My belief is that in practice such a "consumption" tax, say 23% as you cite, would simply be in addition to the present system. The IRS is not going away no matter what politicians promise, and no matter how much any politician believes he is being honest.
Specualtion does not mean much, as the langage of the legislation controls. Just where would the support to "simply" double the current come from?? If they could get away with it as you suggest, then federal taxes today, with respect to income available for expenditure, would be 50% right now, not the 20% they are.
refer Tax Freedom Day 2005 report PDF: Special Report No.134, April 2005
Total Effective Tax Rates by Level of Government
|Notes: Leap day is omitted to make dates comparable over time. Since depreciation is not available to pay taxes, GDP is an overstatement of spendable income for the purpose of measuring tax burdens. Depreciation is netted out of NNP.
"Overall, NNP provides the best statistical representation of the common notion of spendable resources. In 2004 NNP was $10,371.6 billion. Like GDP and PI, NNP is a component of the National Income Product Accounts (NIPA). These accounts are computed and compiled annually by the Commerce Depart-ments Bureau of Economic Analysis (BEA)."
0 First year introduction of HR2525(Fair Tax legislation).
1 Economic Growth and Tax Reform Reconciliation Act of 2001
Sources: Office of Management and Budget; Internal Revenue Service; Congressional Research Service; National Bureau of Economic Research; Treasury Department; and Tax Foundation calculations.
To get votes, to be elected to office, requires paying off supporters and taxing opponents for the required funds. Ain't going to change.
The problem with the current income tax is that nearly half the electorate have no income tax liability and do not give a d' what the other half pay.
"It's like me in the restaurant: What do I care about extravagance if you're footing the bill?"
and the numbers are growing:
Another 3.9 million Americans will have their income tax liability completely eliminated, officials said.
That's 3.9 million Americans more added to the spending constituency of 70% of the public clamoring for more from government, figuring someone else foots the bill.
No upside limit to the process, either.
Under the current system you are certainly correct.
- "There has been a shift in the relationship between individuals and government, he argues, such that fewer and fewer are paying taxes at the same time that more and more are receiving increasingly generous benefits. If it becomes the case that most voters do not bear a financial burden for this largess, then there will be little to restrain--and significant political incentives to encourage--the continued growth of government.
Under a consumption tax that everyone visibly participates in and has a stake in, the paradigm changes significantly:
"Imposts, excises, and, in general, all duties upon articles of consumption, may be compared to a fluid, which will, in time, find its level with the means of paying them. The amount to be contributed by each citizen will in a degree be at his own option, and can be regulated by an attention to his resources. The rich may be extravagant, the poor can be frugal; and private oppression may always be avoided by a judicious selection of objects proper for such impositions. "
"It is a signal advantage of taxes on articles of consumption that they contain in their own nature a security against excess.
They prescribe their own limit, which cannot be exceeded without defeating the end proposed - that is, an extension of the revenue."
The important thing is not the rate but the method. Taxing consumption is a whole new ballgame from taxing income. No gestopo IRS is a tremendous relief. It is freedom.
To start adding exemptions to buy support is to kill it. That is the reason the present system is 60,000 pages long and incomprehensible.
Anyway, I am quite sure that something advertised as "fair tax" is a really bad idea unless you are a rabid Statist. "Fair tax" is a slogan. Two words, good emotional loading, not a bad slogan! Run away.
And you quote an article by Bruce Bartlet, one of the most ardent opponents of the FairTax (or any other sort of NRST unless it is a VAT)? A little balance in outlook would be nice ...
Bartlett even quotes Mikesell as a "sales tax expert" when he is nothing like that but is also a known opponent of the FairTax. Also, Bartlett's claim of drug purchases being made only or largely with after-tax income is clearly out in left field as much of the drug purchasing going on is done with stolen funds and/or untaxed cash income. He greatly misstates the case just as he attempts to minimize the drug dealers purchases as "hamburgers from McDonalds" and "power tools from Sears". Those MAY be some of his purchases, but it would be the BMW 7 Series and xx Million Dollar new home purchases that would rack up even more tax revenue.
As for evasion by both parties that is at best questionable since the retailer is the one on the hook legally for the tax while the buyer may benefit. The retailer has little motivation to take that risk to assist a customer ... he'd be risking his business for a single customer. If he did it repeatedly for large numbers of customers, he'd clearly be in even more danger of detection.
As for requiring retailers needing to question exemptions that isn't necessary at all using the language from the bill that allows the use of the resale certification with protection to the seller (unless he has some reason to be suspicious of the exemption certificate). The retailer does not need to be any sort of gatekeeper - per the bill:
`(1) received in good faith, and retains on file for the period set forth in section 509, a copy of a registration certificate from the purchaser, and `(2) did not, at the time of sale, have reasonable cause to believe that the buyer was not registered pursuant to section 502."
"`(d) Seller Relieved of Liability in Certain Cases- In the case of any taxable property or service which is sold untaxed pursuant to section 102(a), the seller shall be relieved of the duty to collect and remit the tax imposed under section 101 on such purchase if the seller--
`(1) received in good faith, and retains on file for the period set forth in section 509, a copy of a registration certificate from the purchaser, and
`(2) did not, at the time of sale, have reasonable cause to believe that the buyer was not registered pursuant to section 502."
. "Fair tax" is a slogan. Two words, good emotional loading, not a bad slogan!
Yep, you figure any change to the status quo is going to happen without using good advertizing technique?
People think in slogans and in visual images. Arguments using more than four words won't work. Three words is better. Then lots and lots of repetition.
I see you have a handle on the principle.
Don't bother to look into the legislation as actually proposed
[Montesquieu wrote in Spirit of the Laws, XIII,c.14:]
- "A capitation is more natural to slavery; a duty on merchandise is more natural to liberty, by reason it has not so direct a relation to the person."
--Thomas Jefferson: copied into his Commonplace Book.
And keep the current tax system:
"A hand from Washington will be stretched out and placed upon every man's business; the eye of the federal inspector will be in every man's counting house....The law will of necessity have inquisical features, it will provide penalties, it will create complicated machinery. Under it men will be hauled into courts distant from their homes. Heavy fines imposed by distant and unfamiliar tribunals will constantly menace the tax payer. An army of federal inspectors, spies, and detectives will descend upon the state."
-- Virginian House Speaker Richard E. Byrd, 1910, predicting the consequences of an income tax.
Real smart move there.
An altogether repugnant situation.
Or down. The adjustments aren't only upwards.
How about two words such as:
"NO IRS" or
"NO INCOME TAX" (and, yeah, that's 3) or
"GROSS = NET"???
And there are others, too.
The FairTax is the most studeied and analyzed tax bill ever to come before Congress - and it holds up economically as indicated by the endorsement letter from 75 economists:
Then it won't get passed. Not the slightest ghost of a chance.
Then you don't need to worry about it do you.
OTH, with enough electorate support to actually enact an National Retail Sales Tax in replacement of income and payroll taxes, the probability of return to an income tax anytime soon over electorate displeasure is nil.
For enacting it removes not only the income tax, it removes the infra-structure and enforcement agency on which the income tax system is based, and removes the taxpayer database through which said tax is enforced.
The Democrats would be in office right away on a "tax the rich not the poor" (makes a great chant, I can hear it now - "tax the rich not the poor - tax the rich not the poor - tax the rich not the poor") platform.
Figure 5: Annual expenditures vs. FairTax effective tax rates, for a family of four
Re-instating an income tax against electorate and business interests will be political suicide for any party that attempts it.
Poor not taxed, going to a system where middle class and business would be taxed more, not to mention return of the IRS after being free of it, not a winning move for any Dem.
You should investigate the FairTax website.
The basic sales tax rate - called the general revenue rate (now in the bill specified as 14.91%) remains the same. To it are added the amounts required by present entitlement laws (S/S & M/C) a percentage to derive the dollars required by those laws.
It is not the FairTax rate that changes, but the entitlements rates which are controlled by other laws. If you don't like that let's change those laws, but let's not pretend that the basic FairTax itself is being raised without a vote. The entitlements would be raised if still paid from withholdings (and there's no voting on that).
Suggest you read the bill and visit the FairTax website to obtain some non-emotional information.
What do you suggest? Do we throw up our hands and surrender as Karl Marx had predicted when listing an income tax as the best way to end Capitalism? Politicians are much more afraid of voters than they are lobbyists. Lobbyists can influence them but they can't fire them. Voters can.
If enough of us get behind this and let the politicians know we are, this can be done. Then it is up to us to keep it that way.
PSSSSSSSSSSSST! Hey guess what, the Federal Reserve will never go for it!!!
To obtain some more definitive information about the possible state sales tax rates under various scenarios, you might spend some time here:
... and note especially Table 1, line 2.
We're not going to let them vote on the bill in either house.
If the consumer need not be the owner to be taxed, then what about externalized costs, for instance? The environmental possibilities boggle the mind. A "spewing" point source is consuming mass quantities of a publicly owned good, right? You say that the point source owner is not consuming a publicly owned good? Want to try that in the Federal Appeals Court 9th Circuit? You lose. Tax it.
Actually, the thing does not read at all like legislation intended to be passed. More of a manifesto. Just as well.
Reimposing the income tax would not be impossible but easy. Just start out by taxing only incomes over one million dollars per year at 10% to "have them pay their fair share" and "take the tax burden off of the middle class."
I can imagine the rhetoric. "You paid 17% last year. Bill Gates paid 20%". Actually Bill Gates would pay a lot, lot less. He could even put 90% in the bank and pay 2%. How about, "You paid 17% of your money in taxes last year. Bill Gates made $50,000,000 last year and paid 2%."
You propose to vastly increase the Federal Government's power to tax, to intervene in every transaction.
You really should read the legislation, it taxes retail sales only not every transaction and especially not business to business nor investment purchases as both are expressly exempt for said tax unlike the current tax system that intervenes in every payment of income of all 120 million households instead of retail sales comprising 19million entities taxed.
What would happen is this NST bill if it were to become law would be followed immediately by a Democrat government and a reimposition of the income tax. Then we would have both at once.
Gee what would happen if a Democrat government were to enact both a sales tax and income tax today? Nothing in the Constitution prevents that you know. Just the electorate that demands that we do not have both keeps us from having both under any condition.
And, of course, which transactions are taxed and at what rate would be a political issue. "No exceptions" would not last a second.
Lets see for revenue neutrality with current law, each exemption causes the rate to increase. No exceptions is guaranteed a very long life as long as Congress Critters want to stay in office. And an exemption just increases rate, or it automatically becomes a tax cut for everyone.
An example is rental and farming real estate or houses purchased for the purpose of resale. This section is a natural for offshore financial activity. For example, an offshore corporation owning goods and leasing them here in the States. In leasing the consumer does not own the good. Tax the consumer anyway?
Yes as rental is treated as service in the United States and taxable under the legislation, section 102 to be precise. All imports are taxed at consumer level same as domestically produced goods and services. No exemptions, no exceptions. Remember?
A "spewing" point source is consuming mass quantities of a publicly owned good, right?
Is it, or is it a cost of doing business which is not taxed as the cost is passed on in product pricing at consumer level where the tax on consumption takes place. Your objection to this mechanism is?
Remember, business purchase and business use is not taxed being expressly exempted to prevent double taxation. Only purchase for final consumption and use is taxed and only once per the express interpretive requirements of the legislation.
Actually, the thing does not read at all like legislation intended to be passed. More of a manifesto. Just as well.
LOL, for in your imagination, the legislation intended to be passed is not what is in the bill. Nice circular reasoning there. Sorry that red-herring jess don't fly.
ever heard this one? sadly, its awfully close to the truth.
Sometimes people exclaim, "It's just a tax cut for the rich!" and it is just accepted to be fact. But what does that really mean? In case you are not completely clear on this issue, hopefully the following will help.
Tax Cuts - A Simple Lesson In Economics
This is how the cookie crumbles. Please read it carefully.
Let's put tax cuts in terms everyone can understand. Suppose that every day, ten men go out for dinner. The bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh $7.
The eighth $12.
The ninth $18.
The tenth man (the richest) would pay $59.
So, the ten men ate dinner in the restaurant every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve.
"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily meal by $20."
So, now dinner for the ten only costs $80. The group still wanted to pay their bill the way we pay our taxes, so the first four men were unaffected - they would still eat for free. But what about the other six, the paying customers? How could they divvy up the $20 windfall so that everyone would get his 'fair share'?
The six men realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being 'PAID' to eat their meal.
So, the restaurant owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.
The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33% savings).
The seventh now paid $5 instead of $7 (28% savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before. And the first four continued to eat for free. But once outside the restaurant, the men began to compare their savings.
"I only got a dollar out of the $20," declared the sixth man. He pointed to the tenth man "but he got $10!"
"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too. It's unfair that he got ten times more than I!"
"That's true!!" shouted the seventh man. "Why should he get $10 back when I got only $2? The wealthy get all the breaks!"
"Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!"
The nine men surrounded the tenth and beat him up.
The next night, the tenth man didn't show up for dinner, so the nine sat down and ate without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money among them for even half of the bill!
And that, boys and girls, is how our tax system works. The ones who get the most money back from a reduction are those who paid in the most. Tax them too much, attack them for being wealthy, and they just may not show up at the table anymore.
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